April 12, 2011 

April 12, 2011 

Employee Benefits Security Administration 

Office of Regulations and Interpretations 

Attn: Public Hearing on Definition of Fiduciary 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue NW 

Washington, DC 20210 

Dear Sir or Madam: 

 We are writing on behalf of a wide range of financial institutions, including mutual funds, 

insurance companies, and brokerage firms, with respect to the Department’s proposed definition 

of a fiduciary. More specifically, we are concerned about the effect of the proposed definition on 

plan participants and IRA owners served by broker/dealers. 

 We very much appreciated the opportunities to comment on the proposed definition and 

to testify at the hearing. We applaud the Department’s openness to all perspectives. 

 In brief, however, we believe that the proposed regulation would dramatically restrict the 

availability of investment information to middle-income investors by raising the cost very 

significantly for many such investors and simply making such information unavailable to other 

such investors. We know that this was not the Department’s intent. We would like to work with 

you to avoid this very adverse result. 

 Under current arrangements, broker/dealers provide investment information to IRA 

owners, plans, and plan participants. For middle-income investors, this is generally done under a 

commission-based structure, under which the broker/dealer is compensated through 

commissions, 12b-1 fees, recordkeeping fees, etc. This is a very efficient system for middleincome investors, especially those who generally buy and hold securities. 

 Under the proposed regulation, the communication of almost any investment information 

would make a broker/dealer a fiduciary unless the seller exception applies. We would certainly 

urge you to clarify that, consistent with the theory underlying the exception, the seller exception 
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permits broker/dealers to remain non-fiduciaries by fully disclosing their business model and 

compensation structure to their customers. 

 To the extent that the seller exception is not applicable, and broker/dealers become 

fiduciaries, the commission-based business model is no longer workable with respect to IRAs 

and plans. This will mean that investors using this model will need to be shifted to an advisory 

model, under which annual fees are set based on assets under management. 

 The advisory model requires greater service support and thus is more expensive. 

Moreover, the compensation would all come from the investor, rather than from partially from 

third parties, such as the funds. This means that for the middle-income “buy and hold” investor, 

the total increase in cost compared to the commission-based model will be dramatic. In fact, it 

may be so dramatic that it will not even be offered to some such investors, such as through the 

application of minimum account balances. Such minimums would have the additional adverse 

effect of rendering it very difficult to set up a new contributory IRA. 

 In addition, the cost of transition will exacerbate this problem greatly. What does a 

financial institution do with a $19,000 IRA that can no longer operate under the commissionbased model? It is likely too small to be shifted to an advisory model. So instead, such IRA may 

be “orphaned”—it may be cut off from all investment information. 

 If the proposed regulation is finalized in its current form, there could be countless 

orphaned IRAs across the country, all of whose owners would be cut off from investment 

information. The financial institutions would be stuck with huge numbers of these non-revenue 

producing accounts, creating enormous costs. It is almost inevitable that the pain of these costs 

would be spread throughout the financial community, creating even higher fees for advisory 

model clients. 

 These are the results of the proposed regulation. Vast numbers of middle-income 

individuals will lose access to investment information. Other middle-income investors will pay 

far more for investment information. And for far higher fees, the investors will generally receive 

their investment information from the same firms and research departments that provided their 

investment information under the commission-based model. Thus, the system suffers enormous 

pain, with very few advantages. 

 We urge you to modify the regulation to avoid these devastating results by allowing 

broker/dealers to remain non-fiduciaries through full and fair disclosure. If the definition of a 

fiduciary is expanded in any material manner with respect to broker/dealers, it is critical that, in 

order to prevent the above results, comprehensive prohibited transaction class exemptions be 

provided that enable investors ongoing access to information. In this regard, the exemptions 

need to be finalized contemporaneously with the finalization of the regulations in order to avoid 

a devastating cessation of investment information.